RETIREMENT PLANNING

​​A Registered Retirement Savings Plan (RRSP) is an account, registered with the federal government, that you use to save for retirement. RRSPs have special tax advantages.

Tax advantages

1. Tax-deductible contributions – You get immediate tax relief by deducting your RRSP contributions from your income each year. Effectively, your contributions are made with pre-tax dollars.

2. Tax-sheltered earnings – The money you make on your RRSP investments is not taxed as long as it stays in the plan.

3. Tax deferral – You’ll pay tax on your RRSP savings when you withdraw them from the plan. That includes both your investment earnings and your contributions. This is an
advantage if your marginal tax rate is lower in retirement than it was during your contributing years.

How much you can contribute

Anyone who files an income tax return and has earned income can open and contribute to an RRSP. There are limits on how much you can contribute to an RRSP each year.
You can contribute the lower of:

· 18% of your earned income in the previous year, or

· the maximum contribution amount for the current tax year: $23,820 for 2013.

If you are a member of a pension plan, your contribution in pension will reduce the amount you can contribute to your RRSP.

You can carry forward unused contributions

If you don’t have the money to contribute in a year, you can carry forward your RRSP contribution room and use it in

Transferring

You can transfer certain types of payments to a registered retirement savings plan (RRSP) or from one registered plan to another, such as a registered pension plan (RPP), registered retirement income fund (RRIF), specified pension plan (SPP), a deferred profit sharing plan (DPSP), or a pooled registerd pension plan (PRPP).

Tax tip

You have to transfer certain payments directly. To make sure that these funds are transferred on a tax-deferred basis, you must ask the payer to transfer the funds directly

Where can I Invest

Investments that can be held in an RRSP are called qualified investments. They include:

· Cash

· Gold and silver bars

· GICs

· Savings bonds/p>

· Treasury bills (T-bills)

· Bonds (including government bonds, corporate bonds and strip bonds)

· Mutual funds (only RRSP-eligible ones)

· ETFs

· Equities (both Canadian and foreign stocks)

· Equities (both Canadian and foreign stocks)

· Canadian mortgages

· Mortgage-backed securities, and

· Income trusts

· Precious metals

· Personal property such as art, antiques and gems

· Commodity futures contracts

As of March 22, 2011, you also can’t hold any of the following investments in your RRSP:

· Prohibited investments
Examples: debt you hold, investments in entities in which you hold an interest
of 10% or more.

· Non-qualified investments
Examples: shares in private holding companies, foreign private companies and
real estate.

If you buy these investments for your RRSP, you will be charged a tax equal to 50% of their fair market value. You may apply for a refund if you dispose of the investment from your RRSP by the end of the year after the year the tax applied.

How long your RRSP can stay open

You must close your RRSP in the year you turn 71. You can withdraw your RRSP savings in cash, convert your RRSP to a annuity or buy an RRIF

Where to open an RRSP account

· Banks and trust companies

· Credit unions

· Mutual fund companies

· Investment firms (for self-directed RRSPs)

· Life insurance companies

Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year.

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

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